China's recent decision to abandon its "Zero Covid" policy and inject $600 billion yuan into the economy is potentially driving up prices of risk assets, including cryptocurrencies like Bitcoin and other Chinese-associated tokens.
Hong Kong's recent proposal to allow retail investors to trade cryptocurrencies from June 1, 2023, is expected to bring more investors to the market, increasing the demand for Chinese tokens, which are becoming more popular among investors.
The regulatory environment for cryptocurrencies in China remains strict, and geopolitical tensions between China and other countries could impact the growth of Chinese tokens.
The success of Chinese tokens will still depend on how well the teams behind these tokens can remain competitive and meet the needs of investors in China and elsewhere.
On Twitter, there is a new trending narrative of Chinese crypto, but before we get into that, let’s first explore why there is a sudden interest in Chinese coins.
China’s “Zero Covid” policy has caused their economy to go into a slump, but they have recently announced that they are abandoning this policy.
On 17 February 2023, the Chinese central bank also injected $600 billion Yuan, worth about $92 billion USD at that point in time. China is expected to continue to increase liquidity due to the abandonment of their "zero covid" policy.
This has lead to a renewed demand for growth, putting stress on the Chinese banking sector. As a result, the People's Bank of China (PBoC) injected yuan to stimulate the economy to jumpstart growth.
It was China's biggest single injection of cash, and it was also meant to help the country's economy get out of levels that had never been seen before.
In addition to this injection of cash, Hong Kong's Securities and Futures Commission (SFC) recently proposed that retail investors could start trading crypto on June 1, 2023. This could cause a flood of demand from Hong Kong.
In this article, let’s explore a little history of Chinese cryptocurrencies and different cryptocurrencies that may be considered part of the Chinese coin narrative.
Brief History of Chinese Cryptocurrencies
The history of Chinese cryptocurrencies can be traced back to 2011 when China’s first Bitcoin exchange, BTC China, or simply BTCC, was launched and accepted cryptocurrency as payments as early as 2013. Afterwards, some of the world's largest cryptocurrency exchanges, including Huobi and OKCoin launched in China.
However, in 2017, the Chinese government cracked down on cryptocurrencies, banning initial coin offerings (ICOs) and forcing the closure of all cryptocurrency exchanges, causing these Chinese exchanges and cryptocurrencies to move to other countries and have continued to make an impact on the global market.
Let’s explore some of these Chinese coins, both established and new and why they are potentially part of the Chinese narrative.
NEO Blockchain: NEO
One of the most popular Chinese coins is NEO, often referred to as "China’s Ethereum" especially during the 2017 crypto bull run. It was launched in 2014 as Antshares, one year earlier than Ethereum. Now NEO can do around 10,000 TPS and is worth $1.2b in FDV, however, it has only about $50 million of TVL in its DeFi ecosystem, dominated by Flamingo, their AMM DEX. The total supply of NEO tokens is capped at 100 million to be released gradually over a period of 15 years.
Ironically, in the past since NEO is considered a Chinese smart contract platform, it suffered from a disadvantage due to the Chinese government's less-than-friendly stance towards the blockchain industry and their banning of cryptocurrency has turned users and developers away from NEO.
Although NEO has several technological advantages and an early head start, it lacked the strong network effect necessary for success. The more users a blockchain has and the faster its user base expands, the more likely the platform is to succeed; this is known as the "network effect." This is why Ethereum is so valuable – even though its technology might not be the best, its number of users keeps growing. NEO's lack of growth has hurt its chances of competing with other L1 smart contract platforms.
However, NEO's price has more than doubled since its lows, which could be due to a number of factors, some of which will be discussed below.
China regulates their blockchain industry by having their own Blockchain-based Service Network (BSN) which is a blockchain infrastructure project to provide a standardized blockchain environment for developers to create decentralized applications (dApps). It is developed by the State Information Center of China, a government agency, and complies with Chinese regulations, making it essential for blockchains that want to succeed in China to be integrated with it.
Neo-powered Jiuquan Chain has recently announced that it will be one of the ten chains that will make up the Chinese mainnet. This will let people in China use NFT markets that run on the BSN Open Permissioned Blockchain, which will increase NEO’s adoption and network activities.
Jiuquan Chain on the BSN will integrate with the Neo domain name service, giving users the ability to choose a personalized name to use instead of a complicated wallet address or hash string, additionally, NFTs will also be rebranded as "Decentralized Digital Certificates" (DDCs) to distinguish them from NFTs used outside of China.
Another factor contributing to the renewed interest in NEO is the successful launch of N3, which improves network performance, enables digital ID, more comprehensive developer toolkits, and ultimately helps to position NEO as a strong competitor against other L1s.
With the opening of cryptocurrency to retail users in Hong Kong, its new N3 upgrade, NFT marketplaces, and integration with China’s Blockchain Service Network (BSN), NEO may be beginning to regain its foothold in the cryptocurrency world.
BitDAO & Mantle: BIT
BitDAO is an investment collective DAO token with a daily revenue stream of $2.4 million from the contributions made by Bybit, and was launched by them as well. Bybit is a large cryptocurrency derivatives exchange based in Singapore with offices in Hong Kong and Taiwan. It was founded by Ben Zhou, who is from China and has connections there.
The BitDAO treasury also has about $2.8 billion in its treasury with a market cap of $722 million, which is about 4 times less than its treasury, however, about 75% of the treasury conmsists of the BIT token.
Layer 2 (L2) networks are all the rage right now, and the recent news that Coinbase is launching Base, their own optimistic rollup L2 network powered by Optimism, is adding to the buzz.
BitDAO is also launching Mantle, also an optimistic roll up L2 network, and they recently proposed a $200m Web3 fund on their forums to attract developers to build dApps on their ecosystem.
Historically, when there are huge incentives for developers and dApps, the ecosystem tends to experience a strong influx of new users and money, as well as positive speculation of the token price. Examples were Polygon’s MATIC incentives, Avalanche’s AVAX rush incentives, Optimism’s OP incentives, etc which all led to the token price going up after incentives were live.
VeChain is a blockchain-based smart contract platform that was started in 2015. Its main goal is to make inventory tracking more clear so that business and supply chain management problems can be solved with the help of blockchain.
Vechain is designed to solve enterprise problems such as anti-counterfeit for luxury brands by using smart chips to prevents duplication, or using smart IoT sensors to ensure that food doesn’t spoil during transportation by automatically reporting crucial information to the blockchain, and keeping tamper-proof records of automobile vehicle data including repair history, insurance, registration, and driver habits, even quantitatively tracking carbon contributions of a particular company to reduce carbon emissions, and tracing of digitalized clinical trial with a partnership with Bayer China, and more.
Based on their Q3 2022 financial report, the foundation still has about $400 million in treasury, with a quarterly spend of $10 million, which can be extrapolated to $40 million a year, indicating that there is still around 10 years of runway potentially.
The company began as a subsidiary of Bitse, one of China's largest blockchain companies, and the founder, Sunny Lu, previously worked as the CIO of Louis Vuitton China. Over the years it has secured many partnerships with big companies in China such as Walmart China, Bayer China, BMW Group, etc.
With a focus on real-world use cases becoming increasingly important in blockchain and VeChain being one of the leading real world focused blockchain application, this means that they can potentially lead this real world asset narrative wave. Their existing partnerships with big companies make them a strong candidate for big real world use case announcements which can kickstart a rally.
Additionally, they have released a new tech roadmap for the next two years. In the first half of 2023, several big changes are planned for the ecosystem, such as the release of a wallet and an NFT market. The team will also be focusing on product NFTs for the metaverse, oracles, and tokenization for sustainability in the second half of 2023.
The roadmap also outlines plans for the first quarter of the following year, including work on a Layer 2 rollup, an algorithmic stablecoins community and a DAO operating system, features that have proven to be key in a robust DeFi ecosystem which should help VeChain remain competitive in crypto.
Overall, these changes show that VeChain is committed to continuing to develop and innovate in the blockchain industry, with a focus on real-world applications while adapting what has worked in DeFi to increase its use and stay competitive.
Conflux Network: CFX
Conflux Network is a high-performance, EVM-compatible L1 network founded in 2018 by a team of researchers and developers from Tsinghua University, a leading Chinese academic institution.
Conflux achieves high throughput and low latency by utilizing directed acyclic graph (DAG) structure to enable parallel transaction processing and supports up to 3,000 transactions per second (TPS) in a single shard.
They are a regulatory compliant blockchain in China and have performed a lot of business development activities such as partnering with the China Telecom, the 2nd largest wireless carrier in China with close to 400 million users, and has a sim card with a hardware wallet capability, partnering with Little Redbook, Chinese’s “Instagram” with over 200 million daily active users, and many other partnerships. Due to their strong business development efforts, they can be seen by some as "The MATIC of China."
Additionally, the token has a maximum supply of 5.28 billion CFX which will be fully out after 4 years, and the tokenomics also include a staking feature at a modest return of 4% APR. The Ecosystem Fund, which makes up 40% of CFX token, is used to sponsor transactions and the rest is burnt. To date, they have burnt over 16% of the supply already with a proposal to ramp up CFX crypto token burn
CFX has also released a Chinese stablecoin called CNHC. It is fully collateralized by CNH meaning that CNHC is backed by exactly 1 unit of reserved fiat held on behalf of token holders and can be exchanged for 1 CNH. Looking at the profitability of USDC and USDT, a successful China stablecoin can be highly lucrative as China is one of the largest and fast growing economy, and there is no clear competitor for a Chinese stablecoin yet. If CNHC becomes the prominent Chinese stablecoin, CFX will reap the benefits as well. However, CNHC’s Twitter account has not tweeted in months.
Overall, Conflux Network is a promising L1 with connections to China as their HQ is located at Beijing, and can attract developers to build dApps on their fast, scalable and interoperable network.
IRIS Network: IRIS
IRIS is a Layer 1 PoS blockchain built on the Cosmos SDK and developed by some of the developers from Tendermint, the team behind Cosmos SDK. The staking rewards for IRIS is currently around 6.8% a year. IRIS also has a liquid staked derivative created by StaFiHub called rIRIS.
IRIS Network shares Cosmos’ vision of being the "internet of blockchains". IRIS acts as a hub and other IBC apps can be connected to it, just like the Cosmos Hub. This lets users move assets and data between various IRIS connected networks without any problems.
As the IRIS hub is similar to the Cosmos hub, it also serves as a redundant Inter-Blockchain Communication (IBC) router with the same functionality as the Cosmos Hub for enabling cross-chain transactions in the event there’s ever a continental network partition.
IRIS Network project is based in China and has gotten the reputation as China's Cosmos. It has also established partnerships with several leading Chinese companies and academic institutions, such as working with China's Blockchain Service Network which is important for any blockchain projects to succeed in China, as mentioned previously.
IRIS Network has also partnered with Bianjie AI, which is an AI company in China. The partnership aims to promote the development of blockchain technology and to explore new use cases for the IRIS Network.
The focus and vision of IRIS is also different from ATOM, as IRIS Network is focusing more on real world business adoption of its blockchain solution in China. This can also allow IRIS to ride the real world use case trend when it inevitably becomes an important pillar in the future of crypto.
Overall, if the Cosmos appchain narrative were to kickoff again while Chinese tokens remain hot, IRIS token is likely to get some attention, especially if they were to announce any interesting real world business use cases or partnership.
OK Exchange (OKX): OKB
OKex, now known as OKX, is one of the largest cryptocurrency exchanges in the world, with volumes that are similar to Coinbase and is one of the top 5 exchanges in volume, right behind Binance.
The exchange supports various trading products such as coin-margined swaps, perpetual swaps, savings, margin tradings, and derivatives of DeFi projects.
OKB is a utility token that was made by the OK Blockchain Foundation and gives users a number of benefits. Users holding OKB tokens in their OKX account can save up to 25% in trading fees. On top of trading discounts, holders can also use OKB tokens to participate in the OKX Jumpstart feature, have voting rights, and access to C2C lending.
OKB is also a deflationary token, which means that the number of tokens in circulation is always going down as OKX uses the fees that they generate to buy back OKB tokens from the community and burn them.
OKX also supports a community-owned IBC-enabled network called OKX Chain that was built on Cosmos SDK and supports Ethermint, allowing for solidity dApps to be launched on the chain for users to use if they are using Metamask.
OKX started in Hong Kong and has significant users and connections in the China and Hong Kong regions. This allowed them to work with a number of Chinese companies, such as Cobo, a popular Chinese cryptocurrency wallet, and Longhash, a Chinese blockchain incubator, and more.
OKX also has a big presence in China, where it has several offices. The exchange has been working hard to grow its business in the country. It recently launched a website in Chinese and offers customer service in Mandarin.
These partnerships improves OKB's visibility and popularity among Chinese investors, and when Hong Kong opens up crypto trading, a lot of users and volume might take place on OKex which would increase the buy back and burn for the exchange’s OKB token, potentially increasing its value.
Hong Kong's recent decision to let regular people trade cryptocurrency is a big step forward for the crypto industry in the area. This move is likely to bring more investors to the market, which will increase the demand for Chinese tokens, which are already becoming more popular among investors in the region.
With China's huge economy and growing interest in digital assets, the future looks good for Chinese tokens. Also, the decision to make crypto trading legal in Hong Kong is likely to be good for the economy of the country and make it a hub for crypto innovation and investment in the region. As such, we can expect to see continued growth and adoption of Chinese tokens in the coming years.
It is worth noting that the regulatory environment for cryptocurrencies in China remains strict. In recent years, the Chinese government has been very strict about trading and mining cryptocurrencies. At the same time, the country's central bank is working on its own digital currency, which could be perceived as a threat to existing cryptocurrencies.
Moreover, some analysts argue that Chinese tokens may face challenges in gaining broader global acceptance due to concerns around censorship and lack of transparency. There are also concerns about the geopolitical tensions between China and other countries, which could impact the growth of Chinese tokens.
As China attempts to revitalize their economy by injecting more capital, it is likely to attract more investors to get into the market, including the Chinese cryptocurrency token market which could become more popular and become a bigger part of the global cryptocurrency ecosystem.
In the end, the success of Chinese tokens will also depend on how well the team behind these tokens can remain competitive and meet the needs of investors in China and elsewhere.
CJ sold his property to go all-in on crypto in March 2020 and now spends his time sharing about decentralized finance products through educational videos and articles. Follow the author on Twitter @fishmarketacad